Credit Cards

Paying Taxes With a Credit Card: Worth It?

It’s Ron Swanson’s favorite time of year and I know what some of you are thinking: “Can I pay my taxes with a credit card?” If you’re like me and you run a side hustle but don’t have GE’s accountants, then chances are you’ll end up owing money to Uncle Sam. The glass is definitely half full because this could be an opportunity to meet some spending requirements, top off a frequent flyer account, or even earn some cash back.  The cheapest payment processor charges 1.87% for tax payments made with a credit card. So does it make sense to pay the fee in order to earn miles on your tax payments? That depends on which credit card you’re using and how you value your miles.

Paying Taxes With a Credit Card
Paying Taxes With a Credit Card

Discover It Miles Card (During Year 1) – 3% Cash Back

The Discover It Miles Card pays out 3% cash back during the first year. To be exact, you get 1.5% cash back now. The remaining 1.5% is paid out as a bonus at the end of the year. Paying your taxes with the Discover It Miles Card during Year 1 would earn you a 1.13% profit. That’s just $11.30 per $1,000. Regardless of whether you have a large tax bill or not, earning 1.13% cash back on something you have to pay is nothing to scoff at. 

Barclay Arrival Premier World Elite MasterCard – 3X Miles

People are pissed about the new Barclay Arrival Premier World Elite MasterCard. As I said, it’s actually not a terrible card – especially if you’re into manufactured spending. The card offers 1 bonus mile per $1 spent on the first $25,000. That amounts to 3% cash back. If you’re unlucky enough (or lucky, depending on how you see it) to have a $25,000 tax bill, you can earn the a $282.50 profit by paying your taxes with a credit card. 

Credit Cards That Earn More than 1 Mile Per $1 Spent

There are lots of credit cards that earn more than 1 point per $1 spent. Examples include the Club Carlson Premier Rewards card (5 points $1), every Amex Hilton card (3 points) and the Amex Blue Business Plus (2 points). How you value those points determines whether paying 1.87% to earn them is worth it. A lot of people value Club Carlson and Hilton points at $0.05 cents each. On a $1,000 tax payment, you’d earn 5,000 Radisson Rewards points or 3,000 Hilton points. Based on the $0.05 cent valuation, you’d get a $25 and $15 return on $18.70 worth of fees.

I personally don’t subscribe to point valuations. I don’t care that 120,000 AAdvantage miles are worth almost $2,000. Or that a business class flight normally costs $5,000+ and I’m getting “a bargain” by buying miles at half the cost. I care about how much I have to spend to earn enough miles or cash back to book that flight. While you should consider how much value you’re actually getting from your rewards, also think about how much you’d be willing to pay for travel in the first place. That should be your real metric to compare agains the 1.87% credit card processing fee. 

Using Plastiq to Pay Taxes With a Credit Card

Another option for paying taxes with a credit card is via Plastiq. You can pay both state and federal taxes. Plastiq charges a 2.5% fee. If you’re a new Plastiq member, you can get 1000 Fee-Free Dollars (FFD’s) by signing up with my referral code (280806). If you have friends and family who want to pay taxes with a credit card, refer them to Plastiq and earn even more FFD’s. That’s a great way to cut down on Plastiq fees.

Meeting Credit Card Spending Requirements

For some people, meeting credit card spending requirements is difficult. They live in areas without ms-friendly Walmart stores and don’t have enough personal expenses they can channel towards meeting spending requirements. For those people, paying a 1.87% fee might make sense. I would only recommend it as a last resort. Do the math on what those points you’re earning are worth. Then decide whether paying taxes with a credit card makes sense.

Earning Annual Spending Bonuses

Some credit cards offer lucrative annual spending bonuses. Free hotel nights, elite qualifying miles, companion passes – the list goes on. Depending on how much you value your bonus and how far away you are from your spending goal, it might make sense to pay your taxes with a credit card. The Southwest Companion Pass, SPG/Ritz Carlton Platinum status, Hilton free weekend night -these are all bonuses that might be worth the 1.87% credit card processing fee on tax payments.

Are you paying your taxes with a credit card this year?

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7 Comments

  1. Ariana, did you know about 1.97% to PayUSAtax.com using Chase Freedom via Paypal payment gets you 5% return this quarter? Not that great if you have more than $1500 taxes owed though.

  2. Yep, working on hitting the entire $25k spend for Virgin Atlantic to go to Japan next year on ANA.

  3. Chase Freedom — pay with Paypal connected to the Freedom card — earn 5 pt/$$. So charge $1000 in taxes, earn 5,000 pt, minus $20 (approx) for the cc fee. Sounds like a WIN. PS Only the payusatax.com service accepts Paypal.

  4. CORRECTION: “Hilton points at $0.05 cents each” is incorrect. Correct way to state this valuation is 0.5 cents per point ($0.005).

  5. Thanks a timely post, with recent approvals and about 20K MSR that we were planning on meeting organically travel/biz (late comers and havn’t fully finished due diligence on MSing).

    So we filed an extension both from need and now possibly by design, had a ballpark idea but tweaked est. Tax liability to cover about 10k of MSR @1.87% actually lower because you get % back from loaning money to IRS when your due a refund, but we also avoid underpayment penalties from business income that is showing more profit last two years, so that 1.87% is could be far cheaper than IRS penalties.

    So maybe a card with 0% BT for 9-15 months could make sense and expand our opportunities, but not necessarily a good option for others, card slot, debt util/ FICO hit, etc

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